A tale as old as time is to buy outperformers on dips, in any market.
Let me give you a hypothetical situation.
You are a market maker. A client wants to buy 100m X at $10. That’s big size. You can’t offer the full size so you offer to short them 10m at $10 to get their order.
The day closes and your are unable to fill the order so it is returned to the client. The market pukes overnight.
Next day, you have two options:
Keep the same bid to cover your short. There is a chance that your buyer still cares on 90m more, and such, the price is unchanged despite the rest of the market puking. To an outside person who doesn’t have this valuable colour that there is a massive buyer, it telegraphs what might be going on.
You take the price lower…why not? Market is lower, this should be lower, and you can make a bit more money. Ring ring - client on the phone “hey why didn’t you call me these were lower I still have 90m to buy!” You then short even more at a lower price thus leaving yourself in a bigger hole to cover your risk. If the market bounces back, you’re fkd and will be scrambling to cover your short while there is a big buyer out there too.
We, as Ronnie retail, don’t have the full colour on big buyers and sellers out there but market makers too and it becomes so obvious when you see things outperform on dips, those are the things that go on to have incredible performance on market bounces as per the reasons above.
Good luck
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